The accountant for Barry Ltd compares each month’s actual results with a monthly plan. The standard direct labour rates and the standard hours allowed, given the actual output in April, are shown in the following schedule:   Standard direct labour rate per hour   Standard direct labour hours allowed, given April output   Labour class III   $26.00   1,000   Labour class II   $22.00   1,000   Labour class I $12.00   1,000 A new union contract negotiated in March resulted in actual wage rates that differed from the standard rates. The actual direct labour hours worked and the actual direct labour rates per hour for April were as follows.   Actual direct labour rate per hour Actual direct labour hours   Labour class III   $28.00   1,100   Labour class II   $23.00   1,300   Labour class I   $14.00   750   Required: a)  Calculate the following variances for April, indicating whether each is favourable or unfavourable:              I direct labour rate variance for each labour class.              ii direct labour efficiency variance for each labour class.       b)  Discuss two advantages and two disadvantages of a standard costing system in which the standard direct labour rates per hour are not changed during the year to reflect events such as a new labour contract. (maximum 150 words)

Question

The accountant for Barry Ltd compares each month’s actual results with a monthly plan. The standard direct labour rates and the standard hours allowed, given the actual output in April, are shown in the following schedule:

 

Standard direct labour rate per hour

 

Standard direct labour hours allowed, given April output

 

Labour class III

 

$26.00

 

1,000

 

Labour class II

 

$22.00

 

1,000

 

Labour class I

$12.00

 

1,000

A new union contract negotiated in March resulted in actual wage rates that differed from the standard rates. The actual direct labour hours worked and the actual direct labour rates per hour for April were as follows.

 

Actual direct labour rate per hour

Actual direct labour hours

 

Labour class III

 

$28.00

 

1,100

 

Labour class II

 

$23.00

 

1,300

 

Labour class I

 

$14.00

 

750

 

Required:

  1. a)  Calculate the following variances for April, indicating whether each is favourable or unfavourable:

             I direct labour rate variance for each labour class.

             ii direct labour efficiency variance for each labour class.

      b)  Discuss two advantages and two disadvantages of a standard costing system in which the standard direct labour rates per hour are not changed during the year to reflect events such as a new labour contract. (maximum 150 words)

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Standard Costing

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